2013 (2) TMI 47 - HC - Income Tax

Cooperative society wins tax exemption for banking activities under Income-tax Act

The Court upheld the cooperative society's entitlement to exemption under Section 80P(2)(a)(i) of the Income-tax Act, 1961, for engaging in banking ... Exemption u/s 80P(2) - denial as AO determined assessee's status as AOP - assessee as a cooperative society carrying on business of banking thus ITAT allowed the claim - Held that:- As decided in Commissioner of Income Tax, Ghaziabad v. Ghaziabad Zila Sahkari Bank [2013 (1) TMI 553 - ALLAHABAD HIGH COURT] & [2013 (1) TMI 552 - ALLAHABAD HIGH COURT] the cooperative banks who are carrying on banking business are entitled for deduction under Section 80P(2)(a)(i) Issues:1. Interpretation of Section 80P(2)(a)(i) of the Income-tax Act, 1961 regarding exemption for cooperative societies engaged in banking business.2. Determination of the status of the assessee as a cooperative society or an Association of Persons (AOP).3. Entitlement to exemption under Section 80P(2)(a)(i) in light of a debt recovery tribunal order and doubts regarding the eligibility of the assessee.Analysis:1. The main issue in this case revolves around the interpretation of Section 80P(2)(a)(i) of the Income-tax Act, 1961, specifically regarding the eligibility of cooperative societies engaged in banking business for exemption. The Tribunal directed the Assessing Officer (AO) to allow the exemption under this section to the assessee, treating them as a cooperative society carrying on banking business. This decision was challenged by the Revenue in the present appeal.2. Another crucial issue is the determination of the status of the assessee as either a cooperative society or an Association of Persons (AOP). The AO had initially determined the assessee's status as an AOP, which led to disallowance of the exemption claimed under Section 80P(2)(a)(i). However, the ITAT observed that the assessee was a registered cooperative society engaged in banking business, contradicting the AO's findings.3. The third issue raised in this case pertains to the entitlement of the assessee to exemption under Section 80P(2)(a)(i) in light of a debt recovery tribunal order related to financial embezzlement. The question of whether the assessee is eligible for the exemption considering doubts about their basic eligibility was a point of contention. The AO and special auditors appointed under the IT Act had reasons to disbelieve the assessee's version, which added complexity to the case.In the judgment, the Court referred to previous decisions concerning cooperative banks engaged in banking business being entitled to deduction under Section 80P(2)(a)(i) of the Act. The Court upheld this principle and dismissed the appeal, stating that the cooperative society in question was entitled to the exemption under the mentioned section. The Revenue's arguments were not found convincing, and the Court followed the precedent set by previous decisions in similar cases.